The Indian Partnership Act, 1932

The Indian Partnership Act came into force on 1 October, 1932.

This Act is applicable to whole of India.
But wherever the situation is such that the Act does not specifically
dictate any measures, the provisions under the Indian Contract Act
continue to apply.
Objective of the Act
The main objective of the formation of the partnership should be to earn
profits and share them among partners. The sharing of profit and losses
can either be according to the ratio of the capital contributed by each
partner or be equally among all the partners unless otherwise specified.
Meaning of Partnership
Partnership is an association of persons with the object of jointly doing
something to make a profit.
Persons who have agreed into partnership with one another are called
individually “PARTNERS” and collectively “FIRM” and the name under which
their business is carried on is called the “FIRM NAME”.
In other words when two or more persons with the object of making a profit
agree to do business jointly it is deemed that a partnership has come into
existence.
Definition of Partnership (Section 4)
“Partnership is a relation between persons who have agreed to share the
profits of a business carried on by all or any of them acting for all.”
Essentials elements of Partnership 1/4
1) Two or more persons
Partnership needs a minimum of two persons because a single individual can
not be his own partner. So if in future the number of partners reduces to one,
partnership is automatically dissolved.
The number of partnership can not be more than 50. if the number of
partners reduces below the minimum two and more than 50 the partnership
is declared illegal.
2) Existence of Business
The joining of two or more persons can be called partnership only when they
agree to run some business. It is very essential that business should be legal.
2/4
Example- if A and B buy 100 tons of rice and divide among themselves
they can not be called partners they are only co-owners because the
agreement between the two is not with the object of doing any
business. But if both jointly decide to de trading in rice and share the
profit or loss they will be called partners.
3) Contractual Relationship
Partnership comes into existence only on the basis of a contract
between the partners. Hence it is important to have a contract
between the partners. Therefore those people who do not have the
capability to enter into a contract can not become partners.
3/4
Example- minors, mentally unsound persons and persons declared ineligible
by law can not be taken as partners in a firm. but minor can be admitted as a
partner because he is a partner only in the profits.
4) Profit Motive and sharing of profit
The aim of a partnership is not only to attempt to make a profit but also to
share the profit. If the objective of partners is not earning the profit than it is
not called as partnership.
Example- if Mohan and Sohan with the object of helping the poor make an
agreement to sell food items to them on a no-profit basis it will not be
deemed to be a partnership because their objective is not to make a profit but
to help the poor.
4/4
5) Principal- Agent Relationship
In this way every partner plays a double role of an owner and an agent.
6) Object of business being lawful
The business of partnership must not violate the law of the land or go
against the national interest.
Example- there can not be a partnership contract to commit a theft and
share the profits.
Kinds of Partnership 1/3
1) Partnership at will
If the duration of the partnership has not been defined in the contract and any
partner can opt out whenever he desires it is deemed to be a partnership at
will.
2) Particular partnership
The partnership formed for some specific object and it ends with the
attainment of pre-determined specific object.
Example- two persons jointly take up a contract to construct a building. The
contract is for a particular venture and the moment the construction of the
building is complete the contract terminates because the contract was made
for a particular venture and expires with its completion.
2/3
3) Partnership for a fixed period
If the partners make the contract for a fixed period, the contract is valid
only for the specified period.
Example- two persons make a contact to provide hotel facilities to the
visitors to an exhibition in Delhi which is for a period of two months and
share the profit. The contract of partnership in such case would be for
the fixed period of the duration of the exhibition and would terminate
when the exhibition is over.
4) General Partnership
In the general partnership the liability of the partners is unlimited.
3/3
5) Limited partnership
It has two types of partnership-
A) General partner- the general partners liability is unlimited.
B) Special partner- the special partners liability is limited.
KINDS OF PARTNER 1/4
There are following type of partners-
1) Active Partner
An active partner is one who participates actively in the day to day
operations of the business as the firms conduct and management
and carries the daily business activates on behalf of other partners.
2) Sleeping Partner (also known as a Dormant Partner)
Sleeping Partner does not participate in the day to day functioning
activities of the partnership firm and they has sufficient money or
interest in the firm but can not devote his time to the business but
however he is bound by all the acts of the other partners.
KINDS OF PARTNER 2/4
3) Nominal Partner
This partner does not share any profit and losses in the firm and does
not have a voice in the management of the firm. He does not
contribute any capital to the firm.In simple words he is only lending
his name to the firm. Example- any celebrity doing any advertisement.
4) Partner by Estoppel
A partner by estoppel is a partner who shows that he is a partner of the
firm through his words, actions or behavior.
KINDS OF PARTNER 3/4
5) Partners in profit only
This partner of a firm will only share the profits of the firm and won’t
be liable for any losses of the firm.
6) Minor Partner
A minor is a person who is yet to attain the age of majority i.e 18 years.
A minor will share the profits of the firm and his liability for losses is
only limited to his share of the firm. After reaching the age of majority
(i.e. 18 years old) a minor must decide within 6 months whether or
not to join the firm as a partner.
KINDS OF PARTNER 4/4
7) Limited Partner
A limited partner is one whose liability is limited to the amount of
capital he contributes to the partnership firm.
Rights and Duties of Partner
• Rights
1) Rights to share profits
The partners are entitled to share equally in the profits earned and shall contribute equally to
the losses sustained by the firm.
2) Right to take part in the conduct of the business
Every partner has a right to take part in the conduct of the business.
3) Right to express opinion
Any difference arising as to the ordinary matters concerned with the business may be
decided by a majority of the partners and every partner shall have right to express his/her
opinion before the matter is decided.
But no change may be made in the nature of the business without the consent of all partners.
Rights and Duties of Partner
4) Right to inspect books of accounts and other books
Every partner has a right to have access to and inspect and copy any of the books of the firm.
5) Right to receive remuneration (subject to agreement)
A partner is not entitled to receive remuneration for taking part in the conduct of the business but
only if mutually agreed by the partners.
Example- There is a firm consisting of Active and Dormant partners. In such a case, the partners can
form an agreement entitling the active partners to receive a particular sum as remuneration.
6) Right to receive payment of interest on capital (subject to agreement)
A partner is entitled to interest on capital subscribed by him but interest shall be payable only out of
the profits.
Example- A person X, invests ₹50,000 in a partnership firm and provides ₹60,000 to the firm as
advance. In this case, X will receive interest from the profits of the firm for ₹50,000 which he had
invested in the firm and will get 6% interest on the advances made by him to the firm.
Rights and Duties of Partner
• Duties
1) General duty
a) To carry business to greatest common advantage to firm
b) To be just and faithful to each other
c) To render true accounts and full information of all the things affecting the firm.
2) Duty to Indemnify
Every partner shall indemnify the firm of any loss caused to it by his fraud or wilful neglect in
the conduct of the business of the firm.
Example- A, B, C, and D entered into a partnership for the banking business. A committed
fraud of ₹30,000 against one of the customers. As a result, all the co-partners i.e. B, C, and D
were held liable. Here, A is bound to indemnify the firm for the loss caused to the firm
because of fraud committed by him.
Rights and Duties of Partner
3) Duty perform by Diligently
Every partner is bound to attend diligently to his duties in the conduct of the
business.
4) Duty to act in good faith.
it is the duty of partners to act for good faith of the firm. Therefore, the partner
should work to secure maximum profits for the firm.
5) Duty not to earn personal profits.
Example- A, B, and C were partners in a firm. Goods were supplied to a person D.
D paid some extra commission to A, for using his influence to deliver the goods to
D. Here, A has the duty towards the co-partners to account for the commission.
Doctrine Implied Authority of Partner
Every partner is the agent of the firm for the purpose of the business of
the firm.
The authority of a partner means the capacity of partner to bind the
firm by his act.
This authority may be express or implied.
Expressly conferred by an agreement – express authority
No partnership agreement or where agreement is silent-implied
authority.
Incoming and Outgoing Partners
• Incoming Partners
The new partner who will be joining the partnership Firm. It is also
known as a Admission of a partner.
Partners to a firm are free to develop any procedure or understanding for
inducting a new partner into their firm.
Outgoing Partners
A partner who is going to leave a particular firm with purposely or to
he/she might be died and then somewhere it’s a process of outgoing
partner. ( Retirement of a partner, Insolvency of a partner and Death of
a partner.
Dissolution of Firm
There are following modes of dissolution of a firm-
1) By mutual agreement
A firm may be dissolved when all the partners agree for its dissolution. A
partnership firm is set up by an agreement, similarly it can be dissolved by
an agreement.
2) Compulsory dissolution
A firm may be compulsorily dissolved in following cases-
a) When all the partners becomes insolvent except one become insolvent.
b) When business of the firm becomes unlawful.
Dissolution of Firm
3) By notice
In case partnership at will, the firm may be dissolved by any partner giving
notice in writing to all the other partners of his intention to dissolve the firm.
4) On happening of an event (Behalf of Conditions)
A firm may be dissolved in any of the following events if the partnership deed
so provides-
a) On expiry of the term for which the firm was constituted
b) On completion of the venture
c) On death of a partner
d) On adjudication of a partner as insolvent.
Dissolution of Firm
5) Dissolution by court
Court may pass order for the dissolution of the firm when-
a) A partner becomes a person of unsound mind
b) A partner becomes permanently incapable of performing his duties as a
partner
c) A partner is found guilty of misconduct which is likely to adversely affect
the business of the firm.
d) Partnership agreement is breached persistently by a partner or partners.
e) When the business of the firm can not be carried on except at a loss.
 Limited Liability Partnership Act, 2009
(LLP)
• LLP was governed under LLP, Act 2008
• LLP bill was presented on 12 December, 2008
• This Act was enforced from March 31, 2009
• When this Act was enforced it has 81 sections and 4 schedules.

LLP is a new form of legal business Entity with limited liability.

It refers in that form of business organization which has the features of
both the partnership organization and company.
Salient Features of LLP
1) Partner
• For the establishment of LLP the minimum number of partners has to
be not less than two. There is no limit imposed on the maximum
number of partners. The following can be partners in an LLP.
• Individuals
• LLP
• Company: if a company becomes a partner of LLP, it has to nominate
one of its members for this
Salient Features of LLP
2) Contribution
There is no practice of share Capital in LLP. But all the partners
contribute to LLP in some or the other form. Contribution can be of
several forms, namely , cash, movable or immovable property.
3) Limited Liability
The liability of partners in LLP is limited. Every partner has his liability
limited to the investment made by him. Besides every partner is
responsible for any of his misconduct rather than any other partner.
Salient Features of LLP
4) LLP Agreement
• A written agreement is a must among the people interested in establishing an LLP.
Such an agreement is known as LLP Agreement.
• This agreement is in two parts. In the first part the agreement done among the
partners is shown, while in the second part the agreement done between the
partners and LLP is indicated.
5) Designated partner
• In LLP there should be at least two designated partners. One of them must be
resident in India.
• A designated partners is one who has been designated partners are responsible
for implementing all the provisions of LLP Act 2008 in the LLP Organization.
Salient Features of LLP
6) Designated Partner Identification Number(DPIN)
• Every designated partner has to obtain an identification number from
the Central Government. We call it DPIN. If a partner has already got
DPIN, he can use it in LLP.
7) Separate Legal Entity
LLP has a separate legal entity. It implies that LLP and its members both
have a separate entity. It means that the partners of a firm neither
individually nor collectively are responsible for the liabilities created
by the activities of the firm. Also it implies that a firm can have assets
in its own name it can file a suit and a suit can also be filed against it.,
Characteristics/ Features of LLP
8) Creation
The LLP is created by law and its registration is a must. The registration
is done in accordance with the provisions of Limited Liability
Partnership Act, 2008.
9) Common Seal
LLP is an artificial person by law can not put its signature. That is why
LLP has its common seal. So Common seal is the official signatures of
LLP and it is affixed on all the important documents of LLP.
Difference Between Partnership ,Company and LLP
PARTNERSHIP
1. Indian Partnership Act,1932.
2. Registration is Optional
3. Creation through Contract.
4. No separate Legal Entity.
5. Partners joint ownership of
partnership firms assets.
6. Partnership-[minimum-02
maximum-50] members.
7. Every partner is an agent of the
firm and other partners.
8. The partners have unlimited
liability.
COMPANY
1.Indian Companies Act, 1956.
2. Registration must with the
Registrar of Companies.
3. Creation by Law
4. Separate Legal Entity
5. Separate from the members
company independence ownership
of its assets
6. Company- [private company-
minimum-02 maximum-200 and
public company – minimum-07
maximum-no limit]
7. Directors are the company
agents not of the members.
8. Normally liability is limited to the
value of shares.
LLP
1.LLP Act, 2008.
2.Registration must with the
Registrar of LLP.
3. Creation by Law
4. Separate Legal Entity
5. Separate from the partners
company independence ownership
of its assets
6. LLP- [minimum-02 maximum-No
limit]
7. Every partner works like an agent
of LLP not of the other partners.
8. The liability of partners is limited
to the investment made in LLP.